When a not-for-profit facility receives a contribution from a member of the community, the cost of the capital is inconsequential when deciding how to use the contribution, because it is, in effect, free money.” Yes

The statement suggests that when a not-for-profit facility receives a contribution from a member of the community, the cost of the capital is inconsequential, and the money can be considered "free money." However, let's dive deeper into understanding why the cost of capital might be deemed inconsequential in this context.

When a not-for-profit facility receives a contribution, it essentially means that someone has donated money or assets to support the organization's mission or cause. In the case of a contribution, there is usually no expectation of repayment or financial return for the donor.

To understand the notion of the contribution being considered "free money," we can explore the concept of cost of capital. Cost of capital refers to the rate of return required to justify an investment or to undertake a specific project. It takes into account factors such as borrowing costs, return on investments, and the potential opportunity cost of deploying capital in one way rather than another.

However, in the context of a not-for-profit facility receiving a contribution, the cost of capital may be considered inconsequential for a couple of reasons:

1. Donations are typically non-repayable: Contributions are voluntary and do not come with an obligation for the not-for-profit facility to repay the donor. Therefore, there is no direct cost associated with the capital received.

2. Focus on mission fulfillment: Not-for-profit organizations exist to serve a specific mission or cause, rather than generate profits. When a contribution aligns with the organization's mission, it can be used to further that mission without direct consideration of the cost of capital.

That being said, while the cost of capital may be deemed inconsequential in the decision-making process, not-for-profit facilities still need to make prudent and responsible use of the contributions received. They should carefully evaluate how to allocate the resources to best fulfill their mission, ensure accountability and transparency to the community, and strive for efficient and effective use of the donated funds.